10 steps to successful s&op_npf_04-09

8/18/2019 10 Steps to Successful S&OP_NPF_04-09

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10 Steps to

SuccessfulS&OP

J. E. Boyer Company, Inc.John E. Boyer, President


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© Copyright 2009 by J. E. Boyer Company, Inc.

No portion of this article may be reproduced in whole or in part without the prior written

permission of J. E. Boyer Company, Inc. Written materials and intellectual property areprotected by United States copyright, trademark, and patent laws. J. E. BoyerCompany offers no specific guarantees of the practices presented, but the professionalsat J. E. Boyer Company make every reasonable effort to present reliable and fact-basedinformation.

10 Steps to Successful Sales and Operations Planning

©2009 J. E. Boyer Company, Inc. 2


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10 Steps to Successful Sales and Operations Planning by John E. Boyer, President, J. E. Boyer Company, Inc

If you are starting a Sales and Operations Planning (S&OP) process, this article will giveyou a roadmap on how to do it. There is no sense “reinventing the wheel”. So read onand internalize this street-smart pragmatic approach on how to implement S&OP that is

based on my 37 real-world experiences. Even if you have already started, you will findsome tips that will enable process improvements.

S&OP Overview

My definition of S&OP goes like this. It is top management’s handle on the business …the balancing of demand and supply on a regular and formal basis. Let’s break downthe definition:

“Top Management” means the company president, most direct reports, and a fewother selected people like the “demand manager” (to be defined later).

“Handle on the business” means the ability to make fact-based resource decisionsquickly.

“Regular” usually means monthly.

“Formal” means that there are very specific data formats, meeting agendas, and ameeting calendar.

“Balancing demand and supply” requires a bit of explanation. Consider twoscenarios:

1. Demand is greater than supply. What happens? Overtime. Outsourcing. Lateshipments. Premium inbound freight. You can add more to the list. All of these

activities drive cost up in some way, may create more inventory, and likely causeless than desirable customer service.

2. Supply is greater than demand. What happens? Inventory build. Underutilizedfixed cost base. Excess labor and equipment capacity. You can add to this list,too. Again, costs go up.

So students and practitioners of S&OP will argue convincingly that the company has thebest chance to minimize the cost of doing business when demand and supply are inbalance the best they can be. Also, investment will be leveraged and customer servicewill be the best. This is easily said, but difficult to do. Making proactive resourcedecisions is hard work, is based on huge amounts of data, requires superb businessknowledge, commands a collaborative effort from all functional areas, and takes timeand dedication from all process players. But it does work.

The following diagram shows where S&OP fits in the Business Enterprise Model. It is amonthly planning process that deals with aggregate planning groups normally inmonthly buckets. Bookings, backlog, shipments, inventory, and supply are the keyelements. It is not a strategic planning process (this is higher level) nor is it ascheduling tool (this is a more detailed process).




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The remainder of this article addresses how to put in place the business process usedto accomplish the demand and supply balance … Sales and Operations Planning.

Steps to S&OP

There are two distinct phases to S&OP: 1) process design, and 2) process conduct. Inthe design phase, all of the technical workings are engineered, and in the conductphase S&OP is used as a business management process. The following 10 stepsdescribe how to go about these two phases. Steps 1-5 are design and steps 6-10 areconduct.

1. Decide to do it. This seems quite obvious, but there are some important nuancesto this statement. Someone in top with management must decide to get involved inS&OP, and this person must have the authority to commit resources … money andpeople’s time. It does not need to be the entire top management team or even the

president at this point. But it must be someone who will: 1) champion it, 2) learn it,3) resource it, 4) help design it, and 5) help teach it to the other top managementplayers. This could be the president, the vice president of operations or sales, theCFO, or other key top management person. If it is more than one, all the better. Butat least one. If S&OP lacks this type of leader, the activity may become optional andsuffer from lack of resources such as IT support. But once this person decides to doit, the process will have the traction it needs to move forward. You have heard




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before that initiatives such as S&OP need top management support. That’s true …S&OP does. But unlike a popular belief that ALL of them must be on board, youonly need one key player to get started effectively. And in most companies, there isone person in such a position who “gets it” and will decide to do it.

2. Form the design team. This is the group of people who will take care of all of theprocess workings. It is not a big team … usually about six people. Here is a typical

cast:a. The top management leader. This person needs to be on the team to hear first-

hand about all of the design issues and to be comfortable with the decisionsmade. If this person is not on the team, all of the decisions will have to be re-explained which wastes time … it’s like doing the design twice. So it is best tohave this person on the team from the beginning.

b. A person from IT. S&OP is very data intense and requires a major amount ofdata mining, system knowledge, reporting capability, and possibly some dataelement engineering. This is one really awesome technically competent hands-onIT person who listens, comprehends, can communicate with regular people, andwho can put this project second to none!

c. The demand manager. During the process conduct, this person is responsiblefor providing data/information in a “fit-for-use” condition for the S&OP process.He/she must have marvelous interpersonal skills, full command of the businesssystem, detailed working knowledge of spreadsheets, considerable knowledge ofcustomers and products, and must know all of the players well. Most of the time,this is a new position, or a duty added to someone current role. In largercompanies, it can be a fulltime job. In really large companies, it may be a fewpeople. In smaller companies it often takes a person only a few hours permonth.

d. A person from operations. This person must have a grip on purchasing,

scheduling, shipping, inventory control, and material planning. This personshould also understand how the new product introduction process works so it canbe effectively integrated into S&OP.

e. A person from accounting. The primary role of this person is to make sure thatall accounting design aspects of S&OP tie out precisely with the financial reports.For example, if an S&OP documents says that actual sales for the current monthwas $9,547,289, the income statement better say the same thing. If not, theS&OP process will have a credibility problem. Also, the S&OP document (on oneof the pages) should state revenue in the same categories as the incomestatement.

f. A person from sales. This person must have good knowledge of order entry interms of coding, order promising, and date management, and understand howthe entire sales organization operates in terms of regional managers, reps,distributors, consignments, and other sales/distribution channels. Plus thisperson should know the customer base. This person should also have aconnection to marketing if it is a separate functional area.




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3. Educate everyone. Just because a person is a vice president or a departmentmanager doesn’t mean they have a good working knowledge of S&OP. For mostpeople, admit it or not, S&OP is something that they have never done formally anddon’t know the first thing about it … really. So all of the process players must takethe time to learn about it. The players are anyone who is on the design team, whowill participate in any of the ongoing conduct, and who will be directly affected by theprocess output. In a typical 300 person company, this is usually about 30 people …

10% of the population. And they should all be in the room together … this is aninteractive learning process where the process players not only learn from thepresented subject matter, they learn from each other. Normally a two-day workshopis sufficient to give all of these people a baseline understanding of S&OP and getthem on the same page. More may be needed later, but this is good for now.

4. Make a calendar. One of the major keys to successful S&OP is to SHOW UP. Yes… show up. That means when it is time for a S&OP meeting and you are supposedto be there, you must show up. If you are supposed to have some data ready by acertain date, it must be done then. To enable “show up”, successful companiesmake a calendar that shows the month end date, all of the key S&OP processes, theplayers, the dates, and the times. And the calendar goes for a year. This calendaris a one-page document that is published by the demand manager. It is critical thateveryone knows the S&OP process dates and gets them on their personalcalendars. And, the S&OP activities must take priority over all other activities (with afew exceptions). The calendar should be done early in the game even before youknow exactly what all of the steps are. The reason is that normally you must gomany weeks or months into the future to find space in everyone’s personalcalendars to slot the S&OP activities. Mastering “show up” via the calendar givesyour S&OP process a chance to succeed. Without it, S&OP will surely fail.

5. Design the process. There are eight basic process steps, and three prerequisites.

a. The three prerequisites are:

1. Decide on the S&OP format. How do you want to look at sales data?Production data? Inventory data? Backlog data? Capacity data? Do youwant the “all products on the same page for one topic” method or the “alltopics on the same page for one product” method? Format options will bepresented and discussed in the education session mention earlier, so theteam will have some knowledge base for deciding this. Deciding the dataformat first will guide the development of the other process steps.

2. Determine the data hierarchy. Once you know the data format(s), the datahierarchy is the technique that enables mining the data in the desired formatin terms of the sales point of view, the production point of view, the product

point of view, and so forth. Here are some examples:a. Sales: Sales person -> customer -> major product group

b. Production: Plant -> production line -> major product group

c. Marketing: Major product group -> minor product group




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The entire coding scheme must be designed to enable data mining to presentinformation in a fit-for-use condition. This setup takes a huge amount ofcourage because quite often, some or many of the existing coding schemesmust be modified or expanded. And this is a critically important step whichhas system implications. Make sure this is done before any of the next steps.

3. Measure performance. A year or so after you start the project, someone will

ask “how has S&OP helped”? You should be ready with a quantifiableanswer. The normal desired performance improvements are improved on-time shipments, reduced inventory, and a lower cost base. There are severalother metrics that help these top-tier measures such as sales forecastaccuracy, fill rate, past due backlog, and excess and obsolete inventory toname a few. Make sure that you have clearly defined performancemeasures, have the data, have a very professional format for chartingperformance, review the metrics at least monthly with the entire team, anduse the metrics to drive improvement.

b. The eight basic S&OP process steps done each month are:

1. Report month-end actuals (Day 1). At the close of business, the actuals forbookings, shipments, backlog, supply, and finished goods inventory must beavailable. This is not a financial closing. This is simply knowing what theactuals were for the month in terms of units and dollars in the categoriesspecified by the S&OP document format. These actuals should come fromthe business system in a fit-for-use condition, and should NOT require anyspreadsheet post processing or other human intervention. Clean data. Fit-for-use. Just like the S&OP format. And all of this is enabled by the properengineering of the data hierarchy design.

2. Get sales forecast input (Day 1). It must be decided who is going to providesales forecast input. Done correctly, it is the company’s sales people … not

the reps … not the demand manager … not a forecast analyst. The salespeople. In an engineered way, they must state what they are going to sell.Usually this is at an aggregate level by sales person for the top customers,top products within customer, and then completed by having smallercustomers and products lumped into an “other” category.

One decision that needs to be made in this step is what tool will be used tocollect and marshal the data. Sometimes it is a spreadsheet, sometimes it iswithin the business system (ERP), and sometimes it is with an integratedforecasting system. But it is a HUGE issue to determine exactly what the toolis, precisely how it will be used, and engineering its setup to perfection.

3. Aggregate all of the sales input (Day 1). Sometimes this is doneautomatically within the business system, and sometimes a person mustcombine the data into one document. Point is that all of the data from all ofthe sales people must come together in one place in a (you guessed it) fit-for-use condition.

4. Conduct the corporate sales review meeting (Day 2). This is where the vicepresident of sales meets with all direct reports and other people as needed to




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work on the demand side. The past month’s performance is reviewed,reasons for off-plan performance are discussed, and corrective actions areidentified. The data submitted by the sales people is reviewed, changed ifnecessary, and agreed upon. Assumptions are stated as to why the numbersare the way they are … new customers, a product launch, a lost customer,and so forth. The output of this meeting is the demand plan (or sales forecast… same thing to me, but may be viewed differently by some) that will be used

by the demand manager for the next step. Ideally, the demand plan is a“booking plan” … incoming orders, and not shipments, and include units andaverage selling price.

5. Do the S&OP analysis (Day 3). Once the demand manager has the salesforecast from sales, the other elements of S&OP can be added: backlog,shipments, finished goods inventory, and supply (production and purchasedfinished goods for resale). The demand manager must take the salesforecast, figure in the aged backlog, and determine a shipment plan. Thisshipment plan also is the revenue plan. Then the shipment plan coupled withfinished goods inventory build or reduction objectives results in the supplyplan (production plus purchased finished goods). There are basically threescenarios for the production plan: level, demand chase, or hybrid (acombination of demand chase and level). Sometimes, there are a few supplyplan alternatives depending on capacity constraints, inventory issues, andbacklog conditions. But it is the job of the demand manager to sort throughthese issues, arrange the data in a fit-for-use format, and get the informationready for the pre-S&OP meeting. The format for organizing the data iscritical, and must be done to perfection.

6. Conduct the pre-S&OP meeting (Day 4). This meeting is conducted by thevice president of operations and includes direct reports, the demandmanager, and other key materials, scheduling, manufacturing, and/or

purchasing people. The objective of this meeting is to sort through all of thesupply side issues to determine if the sales plan can be accommodated, seeif the inventory and backlog objectives can be met, and to finalize theshipment and supply plans. Performance from the previous month isreviewed and forecasts presented. Any materials, capacity, supplier, and/ortooling issues are surfaced, discussed, and either resolved or escalated. Theprimary outputs are production rates by line or cell, and production rates forkey suppliers. Sometimes, there is an iteration where sales people will becalled in to revise the sales plan based on unsolvable capacity issues. Theresult is a “constrained” sales forecast that may call for product allocations.

7. Conduct the S&OP meeting (Day 5). This meeting is chaired by the president

and includes direct reports, the demand manager, and other selected people.Performance from the previous month is reviewed and forecasts arepresented. Action items from the past meeting are reviewed, and new issuesfrom either sales or operations are presented. Options are discussed, anddecisions are made and documented. The output of the meeting is anapproved plan for sales (bookings), backlog, shipments (and revenue),




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inventory, and supply. All planning and execution details must derive fromthis plan.

8. Communicate the S&OP output (Day 5). After the meeting (within an hour),the official S&OP document should be available on-line for all those havingaccess who are affected by the results of S&OP. For example, a productionline supervisor should know the run rate for his/her line based on the S&OP

document. Additionally, there must be system data readily available in a fit-for-use format to show actual vs. forecast anytime a person wants to checkprogress throughout the month.

6. Hold the fi rst S&OP meeting cycle. This is generally about six months after thedesign process kicks off. Draw a line in the sand, and just make sure you hold thefirst meeting on schedule. The first meeting will be a bit ragged, and there will bedata trauma. It’s inevitable. But have courage. Work out the issues. Havepatience. Encourage the process participants. It will get better. But simple as itseems, it takes about six iterations to get all of the issues worked out and for peopleto have a good understanding of what is going on.

7. Refine the process. During the first six or so meetings, much of the time will be

spent on meeting mechanics, formats, data accuracy, and basically just learningabout what should be done in the S&OP process. The design team’s job is to takethe meeting issues and work out all of the process problems. As time goes on, thefocus will shift from mechanics to running the business. The key here is to haveenough courage and determination to work through the process refinements.




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8. Document the process. Many companies like to put all of the agenda, processflows, data sources, the calendar, the S&OP document itself, and other items in ISOformat. It fits right in with the process documentation scheme. Even without the ISOformat, all key process activities should be written down so people can be trained,and to ensure that the process is understood and followed.

9. Train the users. All people who are affected by the S&OP process must be taught

how to read the S&OP document, and know how their decision process isdependent on the data and decisions in the document. Plus, all affected peoplemust have access to the document and know how to navigate to it. Sounds simpleenough. Just make sure people can get it!

10.Link S&OP to ERP. This means that the output of S&OP must drive through theERP system so that planners and schedulers who are making detailed day-to-dayinventory, purchasing, and production decisions are in sync with what has beendecided at the aggregate S&OP level. There are basically two ways to do this:

a. Run “roll-up” reports for shipments, finished goods inventory, and supply in thesame groupings that are the S&OP groupings. See how close the rolled up detailmatches the S&OP document. If there are significant differences (more than +/-3%), then adjustments must be made to detailed planning.

b. Send the de-aggregated shipment plan to the ERP system as a sales forecast,run planning, and use the rolled up inventory and supply data as the data for theS&OP process. This way, there is no need to match the results … there is onlyone result. However, doing “what if” analysis at the aggregate S&OP level ismuch more difficult and time consuming.

Keys to success

There are four primary keys for a successful S&OP implementation;

1. The first one should be no surprise …SHOW UP! All of the players must bethere when it is time to have a meeting or it is time to have a task done. You’ve

just got to make a commitment to the team, to the company, to the process, andto yourself to show up on time dressed to play. It’s that simple. Lack ofparticipation tells all of the others that S&OP is optional, and you do not wantthat. So suck it up, and show up. You can do it!

2. Get top management support. Remember, initially this really only needs to beone person to get the project resourced, prioritized, and on the radar screen.With persistence, they have a good chance at getting the others on board.Ultimately, you need all of the top management people to participate. But it

becomes much easier many times to get them going once there are somespecific documents, formats, system screens, performance measures, and soforth to show them.

3. Have a one-plan process. When you start out, there will probably be severalsales plans, revenue plans, production plans, and other related plans in thecompany. If you ask “what will sales be for the next three months?”, the CFO willpull out a document and share a number, the operations vice president will go for




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a different document and have another opinion, the sales vice president will saygo ask them, and the president will have a number in his/her head that no oneelse knows about. Sound familiar? This is what is called a multi-plan process.But once you get S&OP in place, you will have a one-plan process. When thatquestion comes up, all of the people mentioned above will reach for their S&OPdocument and have the same answer! One plan. One set of facts. All on thesame page … literally!

4. Have perfect data. What I mean by this is that all of the actuals for bookings,backlog, shipments, inventory, and supply must be absolutely clean. Think aboutit. There is only one right answer to what we did last month. But today, if youask the questions “what did we ship last month?” to the players above, you willprobably get four different answers. But there is only ONE answer! With multipleanswers you will spend the entire S&OP meeting trying to figure out who has theright answer, and will ignore the business decisions that must be made.Unfortunate, but true. So in the design of the S&OP process regarding collectingthe monthly actuals, settle for nothing less than perfection. The reports that youuse to mine and present the data must be engineered right down to the lastdetail, and all must agree on how it is done. Then lock down the reports so thatthere is essentially no chance for a bogus monthly actual.

Timeframe

Implementing S&OP normally takes a year … six months of design and six months forconduct refinement. And that is if your company really makes it a priority, resources it,and works at it diligently as described above. I mean really work at it. If not, you willlose momentum and become disenchanted with the results. The following chart showsa typical schedule:




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Some Final Thoughts

People generally do not like new things, and S&OP will likely be a new thing for yourbusiness. There will a million and one reasons why it is not a good idea. You will needto watch out for constant finger pointing, a multi-plan process, data trauma, lack ofpreparation, top management opting out, attendance problems, and so on. My advice isto DEAL WITH IT! Work past it. Persistence will prevail. If you and your top

management champion truly believe that S&OP is the way to go, you will make it. Iwish you the best on your S&OP journey!

______________________________________________________________________

J. E. Boyer Company, Inc. integrates lean manufacturing with enterprise resourceplanning to create world-class manufacturing environments where these twoimprovement strategies work together. We work on-site at your company. We doclassroom training, one-on-one coaching, and project work … individually or as part of ateam. We work at all levels of the organization from the boardroom to the stockroom!Since 1984, clients from a wide variety of industries have improved their operations interms of cost management, on-time shipments, inventory investment, people

development, operational speed, and overall business performance.

More information is available at: www.jeboyer.com

Please direct your comments and questions to:

John E. Boyer, Jr., PresidentJ. E. Boyer Company, Inc.3347 North 900 EastNorth Ogden, Utah 84414Phone: (801) 721-5284

Fax: (801) 737-0799e-mail: [email protected]


mailto:[email protected]:[email protected]:[email protected]

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